Cars are expensive. According to TrueCar.com, the average price for a new car was a record $31,252 in August of this year. And used car prices are high as well, with the National Automobile Dealers Association predicting the average used car up to eight years old costs $14,375. In fact, after mortgage or rent payments, car loan payments are usually the next biggest monthly budget item, so it's essential that you know how much car you can really afford and shop accordingly.
The price of a car, of course, is only the baseline. You will also need to account for insurance costs (which typically run 5% to 8% of the purchase price), registration fees, sales tax, and finance charges if you cannot save up and pay cash for a car. If you're buying new, your warranty should cover most big repairs for three years or so, but it won't cover maintenance, like oil changes, a new battery, or new tires or windshield wipers. With many used cars, you won't have a warranty, and need to be confident that the model you choose will have affordable repair costs. Using a budget app for your iPhone or Android can be a convenient way to budget for a car.
Consider Safety and Fuel Economy
Everyone should be concerned about car safety, but parents of young children should be particularly informed about safety. You can check safety records online at www.safercar.gov, and you can also find out which models are most and least frequently stolen, which can affect insurance costs.
Fuel mileage is important to most consumers, but because so many people want cars that are more affordable to drive, models with high gas mileage tend to be high (but they may retain value better than less fuel efficient models too). If you drive 10,000 miles per year, you can save around $1,000 per year on fuel costs by choosing a car that gets 35 miles per gallon compared to one that gets 20 miles per gallon.
A new car costs more to insure than the same model used. With new cars, you'll pay more for collision and comprehensive parts of your insurance policy. Many people forego this coverage on old "beater" cars, where the cost of coverage is more than the payout for these repairs, but for new cars and newer used cars, you should have both collision and comprehensive coverage in addition to liability coverage.
Cars with lower theft rates and better safety records tend to keep insurance costs lower. But insurance costs vary according to other factors than make, model, and year. For example, people in different cities, and people in different neighborhoods within the same city may have different insurance rates on the same car.
If you can save up to pay for a car with cash, you won't pay finance charges and you won't have a monthly car payment. However, most people have to borrow to buy a car. Even if you plan to get a car loan, you should use a budget app to help you incorporate the cost of the car into your monthly budget. If you will be getting a car loan, it's best if you can make a 20% down payment. If you can't make a 20% down payment, you should probably consider a cheaper car, or wait until you can put 20% down. A down payment of less than 20% puts you at greater risk of becoming "upside down" on your car loan, where you owe more than the car is worth.
Budgeting for a Car
There are countless things you can do to make it easier to pay for your car. If you plan on trading in, consider selling the car yourself and using that money toward the cost of the car. Selling directly often gets you more than you would with a trade-in. Using a budget app on your phone or computer can help you easily see progress toward your goal, and you can make progress faster by establishing better spending and saving habits.
Over several months, relatively small changes to your spending habits can help you significantly accelerate your saving plan. Making these changes and using a budget app to keep better track of your expenses and saving will help you see progress toward your goal of buying a car, and will help you be able to do so faster.
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